Walé Oriola and Antonio Pozos Talk to FundFire About Regulation of the Cryptocurrency Market

In the article “Finra Probing Crypto Communications after FTX Implosion,” FundFire reported how the Financial Industry Regulatory Authority (FINRA) is looking into potential “misrepresentations or exaggerated claims” made by brokerage firms or their reps promoting or recommending cryptocurrency in the wake of FTX filing for bankruptcy. The publication turned to investment management counsel Walé Oriola and white collar defense and investigations partner Antonio Pozos for insight on the matter.

“A lot of these [crypto] promotions… use celebrities, ads on TV and radio, or they use messaging rooms, Reddit, and things like that,” shared Oriola, referring to marketing by crypto companies. “Broker-dealers generally are subject to the advertising rules of FINRA… communications have to be fair and balanced and not misleading.”

The crypto space still remains the “wild, wild west,” and FINRA, the Securities and Exchange Commission (SEC) and other agencies are responding to the FTX fallout, he noted.

“There is this conversation of whether certain cryptocurrencies are securities, and getting past that idea that they fall within the jurisdiction of the SEC,” Oriola said. “The second question is do they have enough safeguards in place to protect investors. That’s where the broker-dealers come in… to make sure that whatever recommendations that they’re making or orders they’re taking and route into some of these unregulated crypto exchanges, … they’re meeting their obligations under the federal securities laws.”

Pozos explained how Congress has yet to establish a comprehensive framework to regulate cryptocurrencies, and it remains to be seen whether FTX’s crash will advance those efforts. He added that, in the meantime, regulators, including the SEC and Commodity Futures Trading Commission, have been left to use a “patchwork” of existing regulations to assert their authority over digital assets through litigation rather than rulemaking.

FINRA’s sweep is part of a broader effort among regulators to put greater scrutiny into how cryptocurrencies are sold and promoted, Pozos noted.

“All eyes are on crypto,” he said. “FINRA’s announcement fits into this broader context, while its timing suggests that scrutiny by FINRA, [the] SEC, [the Federal Trade Commission] and other regulators of how tokens are sold and promoted is likely to continue to increase post-FTX amid the broader global urge to regulate more aggressively.”